G e n e r a L a g r e e m e n t o n

U

U

U

U

N

N

N

N

D

D

D

D

E

E

E

E

R

R

R

R

SS

SS

T

T

T

T

A

A

A

A

N

N

N

N

D

D

D

D

II

II

N

N

N

N

G

G

G

G

  

  

O

O

O

O

N

N

N

N

  

  

T

T

T

T

H

H

H

H

E

E

E

E

  

  

II

II

N

N

N

N

T

T

T

T

E

E

E

E

R

R

R

R

P

P

P

P

R

R

R

R

E

E

E

E

T

T

T

T

A

A

A

A

T

T

T

T

II

II

O

O

O

O

N

N

N

N

  

  

O

O

O

O

F

F

F

F

  

  

A

A

A

A

R

R

R

R

T

T

T

T

II

II

C

C

C

C

L

L

L

L

E

E

E

E

  

  

X

X

X

X

X

X

X

X

II

II

V

V

V

V

O

O

F

F

 

 

T

T

H

H

E

E

 

 

G

G

E

E

N

N

E

E

R

R

A

A

L

L

 

 

A

A

G

G

R

R

E

E

E

E

M

M

E

E

N

N

T

T

 

 

O

O

N

N

 

 

T

T

A

A

R

R

I

I

F

F

F

F

S

S

 

 

A

A

N

N

D

D

 

 

T

T

R

R

A

A

D

D

E

E

 

 

1

1

9

9

9

9

4

4

Members,

Having regard to the provisions of Article XXIV of GATT 1994;

Recognizing that customs unions and free trade areas have greatly increased in number and

importance since the establishment of GATT 1947 and today cover a significant proportion of world trade;

Recognizing the contribution to the expansion of world trade that may be made by closer

integration between the economies of the parties to such agreements;

Recognizing also that such contribution is increased if the elimination between the constituent

territories of duties and other restrictive regulations of commerce extends to all trade, and diminished if any

major sector of trade is excluded;

Reaffirming that the purpose of such agreements should be to facilitate trade between the

constituent territories and not to raise barriers to the trade of other Members with such territories; and that

in their formation or enlargement the parties to them should to the greatest possible extent avoid creating

adverse effects on the trade of other Members;

Convinced also of the need to reinforce the effectiveness of the role of the Council for Trade in

Goods in reviewing agreements notified under Article XXIV, by clarifying the criteria and procedures for

the assessment of new or enlarged agreements, and improving the transparency of all Article XXIV

agreements;

Recognizing the need for a common understanding of the obligations of Members under

paragraph 12 of Article XXIV;

Hereby agree as follows:

1.

Customs unions, free-trade areas, and interim agreements leading to the formation of a customs

union or free-trade area, to be consistent with Article XXIV, must satisfy,  inter alia, the provisions of

paragraphs 5, 6, 7 and 8 of that Article.

A r t i c l e

A r t i c l e   X X I V : 5

  X X I V : 5

2.

The evaluation under paragraph 5(a) of Article XXIV of the general incidence of the duties and

other regulations of commerce applicable before and after the formation of a customs union shall in respect

of duties and charges be based upon an overall assessment of weighted average tariff rates and of customs

duties collected. This assessment shall be based on import statistics for a previous representative period to

be supplied by the customs union, on a tariff-line basis and in values and quantities, broken down by WTO

country of origin. The Secretariat shall compute the weighted average tariff rates and customs duties

collected in accordance with the methodology used in the assessment of tariff offers in the Uruguay Round

of Multilateral Trade Negotiations. For this purpose, the duties and charges to be taken into consideration

shall be the applied rates of duty. It is recognized that for the purpose of the overall assessment of the

incidence of other regulations of commerce for which quantification and aggregation are difficult, the

examination of individual measures, regulations, products covered and trade flows affected may be

required.

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GATT 1994 UNDERSTANDING ON REGIONAL TRADE AGREEMENTS   23

3.

The “reasonable length of time” referred to in paragraph 5(c) of Article XXIV should exceed

10 years only in exceptional cases. In cases where Members parties to an interim agreement believe that 10

years would be insufficient they shall provide a full explanation to the Council for Trade in Goods of the

need for a longer period.

A r t i c l e

A r t i c l e   X X I V : 6

  X X I V : 6

4.

Paragraph 6 of Article XXIV establishes the procedure to be followed when a Member forming a

customs union proposes to increase a bound rate of duty. In this regard Members reaffirm that the

procedure set forth in Article XXVIII, as elaborated in the guidelines adopted on 10 November 1980

(BISD 27S/26–28) and in the Understanding on the Interpretation of Article XXVIII of GATT 1994, must

be commenced before tariff concessions are modified or withdrawn upon the formation of a customs union

or an interim agreement leading to the formation of a customs union.

5.

These negotiations will be entered into in good faith with a view to achieving mutually satisfactory

compensatory adjustment. In such negotiations, as required by paragraph 6 of Article XXIV, due account

shall be taken of reductions of duties on the same tariff line made by other constituents of the customs

union upon its formation. Should such reductions not be sufficient to provide the necessary compensatory

adjustment, the customs union would offer compensation, which may take the form of reductions of duties

on other tariff lines. Such an offer shall be taken into consideration by the Members having negotiating

rights in the binding being modified or withdrawn. Should the compensatory adjustment remain

unacceptable, negotiations should be continued. Where, despite such efforts, agreement in negotiations on

compensatory adjustment under Article XXVIII as elaborated by the Understanding on the Interpretation of

Article XXVIII of GATT 1994 cannot be reached within a reasonable period from the initiation of

negotiations, the customs union shall, nevertheless, be free to modify or withdraw the concessions; affected

Members shall then be free to withdraw substantially equivalent concessions in accordance with

Article XXVIII.

6.

GATT 1994 imposes no obligation on Members benefiting from a reduction of duties consequent

upon the formation of a customs union, or an interim agreement leading to the formation of a customs

union, to provide compensatory adjustment to its constituents.

Review of Customs Unions and Free-Trade Areas

7.

All notifications made under paragraph 7(a) of Article XXIV shall be examined by a working party

in the light of the relevant provisions of GATT 1994 and of paragraph 1 of this Understanding. The

working party shall submit a report to the Council for Trade in Goods on its findings in this regard. The

Council for Trade in Goods may make such recommendations to Members as it deems appropriate.

8.

In regard to interim agreements, the working party may in its report make appropriate

recommendations on the proposed time-frame and on measures required to complete the formation of the

customs union or free-trade area. It may if necessary provide for further review of the agreement.

9.

Members parties to an interim agreement shall notify substantial changes in the plan and schedule

included in that agreement to the Council for Trade in Goods and, if so requested, the Council shall

examine the changes.

10.

Should an interim agreement notified under paragraph 7(a) of Article XXIV not include a plan and

schedule, contrary to paragraph 5(c) of Article XXIV, the working party shall in its report recommend such

a plan and schedule. The parties shall not maintain or put into force, as the case may be, such agreement if

they are not prepared to modify it in accordance with these recommendations. Provision shall be made for

subsequent review of the implementation of the recommendations.

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24  

THE WORLD TRADE ORGANIZATION AGREEMENTS

11.

Customs unions and constituents of free-trade areas shall report periodically to the Council for

Trade in Goods, as envisaged by the CONTRACTING PARTIES to GATT 1947 in their instruction to

the GATT 1947 Council concerning reports on regional agreements (BISD 18S/38), on the operation of

the relevant agreement. Any significant changes and/or developments in the agreements should be reported

as they occur.

Dispute Settlement

12.

The provisions of Articles XXII and XXIII of GATT 1994 as elaborated and applied by the

Dispute Settlement Understanding may be invoked with respect to any matters arising from the application

of those provisions of Article XXIV relating to customs unions, free-trade areas or interim agreements

leading to the formation of a customs union or free-trade area.

A r t i c l e

A r t i c l e   X X I V : 1 2

  X X I V : 1 2

13.

Each Member is fully responsible under GATT 1994 for the  observance of all provisions of

GATT 1994, and shall take such reasonable measures as may be available to it to ensure such observance by

regional and local governments and authorities within its territory.

14.

The provisions of Articles XXII and XXIII of  GATT 1994 as elaborated and applied by the

Dispute Settlement Understanding may be invoked in respect of measures affecting its observance taken by

regional or local governments or authorities within the territory of a Member. When the Dispute

Settlement Body has ruled that a provision of GATT 1994 has not been observed, the responsible Member

shall take such reasonable measures as may be available to it to ensure its observance. The provisions

relating to compensation and suspension of concessions or other obligations apply in cases where it has not

been possible to secure such observance.

15.

Each Member undertakes to accord sympathetic consideration to and afford adequate opportunity

for consultation regarding any representations made by another Member concerning measures affecting the

operation of GATT 1994 taken within the territory of the former.

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25